I’ve been offered a job by a company in the US, but I had been planning to spend a year or so in Taiwan. They offered to let me work remotely in America first for a few months as W-2, then switch over to 1099 status while in Taiwan, then come back to America as a W-2.
What kind of legal trouble might the company or myself get in trouble with the IRS or government with for switching back and forth like this?
The trouble is going to be that there are certain factors that determine whether you are an employee or an independent contractor. And if those factors determine that you are an employee , then you are an employee. There isn’t any choice in the matter and it’s going to be just about impossible to explain why you were an employee for this period of time and a contractor for this other period of time and then an employee again while doing the same job. There are plenty of jobs that can be done either as an employee or a contractor - for example , some doctors, lawyers , accountants are contractors while others are employees but it’s not very believable that the same accountant is sometimes my company’s employee and at other times is an independent contractor.
Also, you are going to have to pay self-employment tax if you are a contractor , which is the equivalent of paying both halves of the SS and Medicare taxes. Which is probably why the employer is offering to do this, They will avoid payroll taxes and anything else paid on a per employee basis - workers comp insurance, unemployment tax or premiums
@doreen nailed it in one.
They and you are lying to the IRS one way or the other. Both situations cannot be true for the same work by the same worker. The fact you are local vs remote has exactly zero connection to whether you’re an employee or a contractor.
What this is connected to is the employer’s need to comply with Taiwanese labor laws and Taiwanese taxes. Which they hope to sidestep by dumping entirely on your neck. In addition of course to them offloading the employer portion of US social security taxes onto you during the 1099 period. As @doreen said.
Whether you want to run that risk is up to you. Is there a computer program at IRS looking for stuff like this? Darn good question I can’t answer.
Exactly this
After retiring/being laid off* from Boeing in 2020, I was hired as a contract employee 4 months later. Exact same work I did as an hourly employee except nothing deducted from my paycheck including taxes, union dues, all overtime was voluntary and continued to receive my pension. I was also given 24 hours of PTO a month instead of earning vacation time. There were about 50 of us contract employees working along side the regular hourly union employees. After working 3 months, I was offered another 3 month contract or come back to work as a regular full time employee. The rehire also allowed me to continue receiving my pension. I chose option C, take my $5000 bonus for staying the full 3 months and go back into retirement. I took the union’s advice and paid my income taxes for each part of each quarter I worked. Never had any issues with the IRS and still received a refund when I filed taxes for that year.
Making a change to a 1099 and back again in a single tax year is red flag for the IRS. Sounds like they’re trying to avoid dealing with either US or Taiwanese tax issues. Have you ever worked as a contractor on 1099 before?
Thanks Doreen and LSLGuy.
No, I have not. I’ve been a freelance worker before but that was so informal and under-the-table that it involved no forms whatsoever; I was just being paid straight cash.
How is the OP lying? How much power do they have in reality to declare themselves a W2 or 1099 worker? Best they could probably do is make a report the their state labor board or the IRS.
It sounds like you were laid off and then after a break they brought you back on as a temp worker and then asked if you wanted to become a temp-to-hire. This is different than the OP where the entire thing is planned with no breaks in between.
And the IRS will lie also.
When they file a tax return showing both statuses for the same work, that’s when the OP will have lied to the IRS. But choosing to accept the job now makes that eventual tax return and lie inevitable.
So let’s say the company switches the OP back and forth as described and refuses to listen to the OP. What should the OP do? I don’t think, “It’s wrong but there is nothing I can do about it since my work status is out of my control.” = lying so to say the OP is lying implies there is something they can do about it.
This. (IANAL, but I have hired plenty of people on a 1099 basis while the nonprofit I was running was simply too darn broke to afford employees and benefits.) While I agree that the company may be doing some fancy accounting footwork that they shouldn’t, the employee/contractor shouldn’t care at all from a moral/legal standpoint - only from the hassle and expense standpoint, which @doreen laid out in her 2nd paragraph.
The contract with IAM751 specifically bans temporary workers. That is why we were brought back as contract employees. I had worked as a temp worker for Boeing back in the 80’s before the change was made in the contract, as a temp worker I was still subject to the same conditions at the permanent workforce. I received a W-2 and had taxes deducted from my pay.
Sort of.
From one POV, the IRS/SSA’s sole interest is that all taxes get paid. The details aren’t deeply their interest. If the OP files the numbers accurately and pays the full bill timely, they’re (mostly) disinterested in the rest.
From a larger POV, working as a 1099 when in fact under the law you should be a W2 employee is engaging in a conspiracy with the employer to enable the employer to defraud the government of various taxes, including unemployment taxes on what’s truly a W2 situation. Depending on the size of the employer, this may also represent them trying to hold headcount below 50 or 100 or some other magic number where major Federal compliance issues with non-tax regulations kick in.
The really-truly-employee’s choice may be “Accept 1099 status or quit”. But they have a choice. Working for criminals just because you need a job is not an excuse for the crimes you commit with those criminals.
Admittedly this is more of a legal-moral issue than a legal-go-to-jail issue for the employee. But it is real.
Again, you are implying the worker has control over their status when they really don’t. My employer says I’m a 1099 worker. I complain that I’m a W-2 worker. My company says nope and continues to pay me as a 1099 worker. How am I lying or in the conspiracy if I have no control? You honestly think quitting is the solution?
The control is choosing to work in the conspiracy or quit. If you can’t see that I have nothing further to say on the topic.
If an employer pays salary only and offers no benefits, can they classify anyone they like as 1099, or do certain restrictions still apply (such as the employee cannot be issued a company laptop, cannot be working on a required time schedule as everyone else, etc.)?
This is putting the cart before the horse.
The employer wants to classify you as an “independent contractor” so that they don’t have to provide benefits, pay taxes, etc.
We often have employees go from regular employees to a consultant (1099 status) after they retire or are dropping out of full time work (for example) to have and raise children. But they are truly consultants. They are providing advice and guidance on their area of expertise on the basis of a Statement of Work. They may have meetings with employees, but they aren’t on site on a regularly scheduled basis and aren’t set up with general access to our systems.
We don’t face issues with the IRS or State Revenue organizations even if we are issuing a W-2 and a 1099 to the same person. Though the 1099 us usually issued to an LLC’s TIN, not that employee’s SSN.
One question that the OP didn’t explicitly answer is this: is the work being done in America and in Taiwan the same job? If it’s essentially the same duties, then the company should treat the OP as an employee, regardless of where the OP is located.
This link, while not official, may be helpful.
Can I be an Employee & Independent Contractor for One Company (strategichrinc.com)